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Elevator pitch

Estimating the causal effect of immigration on the labor
market outcomes of native workers has been a major concern in the literature. Because
immigrants decide whether and where to migrate, immigrant populations generally consist
of individuals with characteristics that differ from those of a randomly selected
sample. One solution is to focus on events such as civil wars and natural catastrophes
that generate rapid and unexpected flows of refugees into a country unrelated to their
personal characteristics, location, and employment preferences. These “natural
experiments” yield estimates that find small negative effects on native workers’
employment but not on wages.

Key findings

Pros

Refugee flows into a country are generally due to
reasons unrelated to the immigrants’ location and employment preferences.

Refugee flows bring in a massive number of
immigrants within a short period.

The location of refugees within the host country is
generally determined by the host government based on security, logistic, and
social concerns.

From the host country perspective, refugee flows are
mostly unexpected events that can be considered immigration shocks.

Cons

Refugee inflows to a region can trigger an outflow
of native workers from the refugee-receiving regions to other regions in the host
country, creating new selectivity problems.

The skill composition of refugees may affect their
impact on native workers’ labor market outcomes.

The impact of refugees may also depend on the
existing stock of immigrants, which affects the absorption capacity of local labor
markets.

In the longer term, the occupational distribution of
the refugee population may be influenced by the relative returns across
occupations in the host labor market.

Author's main message

Countries are concerned that immigration may cause the
employment and wages of native workers to fall. To estimate such causal effects, the
decision on whether and where to migrate has to be randomly assigned. A close substitute
is to exploit natural experiments, such as sudden and rapid refugee flows. Estimates
based on refugee flows find larger short-term impacts than long-term impacts, since
local labor markets tend to adjust in the long term. Thus, policymakers should focus on
targeted labor market policies and social programs that jointly facilitate the
integration of refugee workers into local labor markets in the short term.